Ontario company demands wage cuts greater than 50 percent Special

London
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The fence is up and the question now being asked is: "What next?" Despite the Electro-Motive Diesel (EMD) plant having a long history in London, Ontario, there are fears in this Southwestern Ontario community of losing the large, successful plant.

In a city struggling with one of the highest unemployment rates (9.8 percent) for a city its size in Canada, the loss of yet another major industry would be a hard blow to the area economy.

Progress Rail Services, a subsidiary of giant Caterpillar Inc., is threatening to close the 61-year-old locomotive manufacturing plant unless employees accept a pay-cut of more than 50 percent in some cases. Bob Scott, plant chair, confirmed to Digital Journal that the company's latest offer would slash wages to $16.50 from $35 an hour. The bargaining committee has rejected the offer and Friday a strike vote will be held. The workers are represented by the Canadian Auto Workers (CAW).

Union members, fearing the company may attempt to move valuable, core equipment from the London plant, have been watching the facility 24-hours a day since last Friday. Where would the equipment go? EMD employees with whom Digital Journal spoke believe a plant recently opened in Muncie, Indiana would be the logical destination.

Muncie may be located in the United States but it is a city becoming known for its third world wages. "The lower wages offered in London still top what's paid at Progress Rail's refurbished plant in Muncie, Ind., where workers make as little as $12 an hour," according to Jonathan Sher of The London Free Press.

According to the Working Poor Families Project, Indiana ranks 27th among American States when it comes to jobs in occupations offering pay below the poverty line. There's a good reason why Caterpillar picked the rust belt city of Muncie for its latest American plant. Skilled workers are available there for unskilled worker wages.

A former Westinghouse plant in Muncie, Indiana, being converted to locomotive production by Progress Rail. Credit: Indiana Railroads Bull Session.

Indiana Railroads Bull Session

In October 2010, Caterpillar Inc. acquired an empty 740,000-square-foot factory in Muncie. The former Westinghouse plant was reportedly ideal for conversion to locomotive production. It took only a year to ready the plant. The Muncie facility, after an investment of approximately $50 million US, is larger than the London, Ontario, complex. Like London, a locomotive test track is part of the plan. [Photo credit: Indiana Railroads Bull Session]

With the Muncie plant operational, Progress Rail can bid on contracts to supply locomotives to publicly funded US passenger rail agencies that require their rail equipment to be assembled in the United States. GE, the only other major American locomotive builder, now has competition when it comes to these "Buy American" contracts.

With contract talks at an impasse, the London workers are concerned about the possibility of a lock out. Come January 1st the company will be in a legal lock out position. On the other hand both sides may decide to continue under the old agreement which has already had a 7 month extension.

There is good justification for concern. In one of the most infamous labour confrontations of modern times, Caterpillar locked out its workers in 1991 marking the beginning of a multi-year, no holds barred, winner take all, labour dispute. Caterpillar won.

Multinational Monitor, a bimonthly magazine founded by Ralph Nader, named Caterpillar Inc. one of the ten worst corporations of 1996 for their part in the conflict. MM reports, "by the time it was over, the National Labor Relations Board had charged Caterpillar with more than 300 unfair labor practice violations, the most of any single labor dispute in U.S. history."

"To get a flavor of the problem, consider recent reports of changes at Caterpillar, one of the nation’s largest manufacturers. In the past, a typical worker received a package that averaged about $25 an hour in pay; with benefits included the package was valued at $40 an hour. Under the new contract, new employees would receive $12 an hour and an additional $9 per hour in benefits. Explaining this shift, a group president at the firm commented that, “There is a balance that must be struck between being competitive and being middle class” (Uchitelle 2006)."

As one worker watching the London plant for suspicious activity told Digital Journal Thursday, "If they [EMD-Progress-Caterpillar] pull off what they are trying here, every worker in Canada is threatened."

The Electro-Motive Diesel plant in London, Ontario is closed for the holidays.

There is another interesting twist to this all-too-common story of banishing the middle class to the bottom, and that's the fact that Caterpillar is a Johnny-Come-Lately to the London locomotive scene.

Electro-Motive Diesel (EMD) was purchased from General Motors in 2005 by the Greenbriar Equity Group LLC and Berkshire Partners LLC for an undisclosed sum, but rumours pegged the selling price at $200 million. Five years after EMD was spun off from GM, EMD had increased investment in R&D, upgraded its factory equipment, doubled revenues, increased exports, and grown its workforce and supplier base.

It was at this point that Progress Rail, a wholly-owned subsidiary of Caterpillar Inc., joined the game, acquiring EMD in 2010 for $820 million in cash, plus a net working capital adjustment estimated at approximately $108 million. The two private equity investment firms sold EMD for a tidy profit.

With Progress Rail at the helm, EMD has added three additional locomotive assembly plants to the mix: the one in Muncie, Indiana, plus one in Sete Lagoas, Minas Gerais, Brazil, and another in Sahagun, Mexico. Make no mistake: This is one successful, global company.

The plant in Mexico is not a new facility but one operated by a Progress Rail global strategic partner, Bombardier Transportation. William (Billy) Ainsworth, President and CEO, Progress Rail Services, said he was very pleased with the work performed by the entire Bombardier team at the Ciudad Sahagun plant.